While there are many advantages to being a lead investor there are also disadvantages. Here’s a list of disadvantages to consider:

The lead investor must convince the other investors to agree on the proposed terms.

Not everyone will agree with the terms and the valuation set by the lead investor.

The result of the investment will be placed on the shoulders of the lead investor.

If the outcome is not a positive one, the lead investor will receive the blame.

There is a time commitment.

The role of the lead investor includes negotiating  the terms and valuation and recruiting other investors.

Closing the round will take considerable time as the other investors will go through their own diligence process.

Providing diligence to other investors often leads to investors not doing diligence.

Each investor is responsible for their own diligence result. There’s an expectation that the lead investor will join the next round. 

By not joining it will put the startup in a difficult position.

Consider these disadvantages before assuming the lead investor role.  

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.